2011 CONFERENCE REPORT
Carmakers highlight component quality as path to success for China’s auto industry
While production will continue to expand in a market which still has a very low penetration of car ownership, the key to the future of China's auto sector is raising quality. And it is among suppliers, especially those at Tier 2 level and below, where effort needs to be focussed.
SHANGHAI, 30 JUNE 2011: Delegates to the AMS China Conference heard forecasts from the major OEMs, both domestic and joint venture, that production volumes will continue strong growth. But executives like John Buttermore, General Motors’ vice-president of manufacturing for all regions outside North America and Europe, and Chen Jianwei, vice general manager at Guangzhou Automobile, said that carmakers must concentrate on improving both quality and efficiency across all areas of production in order to support that growth.
The conference brought together around 250 executives from OEMs, tier suppliers and equipment and technology providers over two days of discussions, presentations, networking and technical workshops. AMS China 2011 was the second annual event, and is complemented by similar conferences in the other fast-growing markets of India and South America.
GM's Buttermore forecast a 10% growth in the China's sales in 2011 compared to the 18.4 million units of 2010, not quite the dramatic 30% surge of the previous year but significant nonetheless. Some 75% would be light vehicles. By 2015, he said, GM's own sales are expected to more than double the 2.35 million achieved in 2010 to reach five million vehicles per year. He said that GM would need to increase its manufacturing footprint, which would involve expansion with the US carmaker’s in-country partners, SAIC and FAW.
He went on to say that local capability must allow the current model range to be expanded to include more "world-class vehicles", which would be supported through improvements in local know-how and better ‘vision’. He also said that he would be looking to “leverage GM’s global manufacturing system to design cars in China for the Chinese”. As part of this push, Shanghai GM Wuling has recently launched the new Baojun brand, starting with the 630 saloon which is specifically designed to suit Chinese buyers.
Adding his voice to the need for improvements in finished vehicle quality, Chen Jianwei said that only top suppliers had been selected to deliver parts and modules for the new Trumpchi model, including companies like Bosch, Visteon, Faurecia and TRW. Some 33% of suppliers are based in Europe, 22% in Japan and Korea, with the remainder based in China. Guangzhou Automobile was founded only three years ago and its first plant opened in 2010 with 200,000 units per annum, with plans to double that.
“It is essential to share information with suppliers, in order to help improve parts and services,” said Chen. The Trumpchi is the company’s first non-joint venture vehicle, and has achieved a five-star safety rating in Chinese NCAP testing largely due to the rigid passenger cell designed to channel crash forces around rather than through the cabin.
But quality problems among tier suppliers are not yet being seriously addressed, according to Tom Callarman, professor of operations and supply chain management at the China Europe International Business School. He told delegates that the findings of a 2008 McKinsey report still held good today. That report had identified the source of defects in finished vehicles as 43% due to product design, 45% due to suppliers, 10% due to vehicle production and 5% due to after-sales.
"Our research says these are still the issues today," Callarman told delegates. "The OEMs (in China) don't have quality problems in building cars; they are as good as anywhere else in the world. It's the tier suppliers." He went on: "Clearly OEMs have the overall responsibility, but their quality standards are not implemented the further down the tier suppliers you go."
In order to counter this, Callarman said that OEMs should involve tier two and other suppliers from the design stage in order to develop better relationships. He gave an insight into the challenges when he described a visit to a tier 2 supplier where story-boards (illustrating the correct way to carry out defect-free production) were widespread and clear, but were written in English. The boards were being used by managers, not by the workers for whom they were intended, who did not speak English.
Environmental standards also the target
Emphasizing that quality build was possible in China, Stefan Heülsenberg, vice-president of manufacturing at the Dadong and Foresight BMW plants in Shenyang, said that the company had maintained the same standards for finished vehicle quality when using local supplies as had facilities located in Germany.
In a comment which saw general agreement from senior OEM executives present, he identified human factors as the key to driving improved quality. "90% of problems and defects come from behaviour and attitudes," he said.
He also said that the company’s new Tiexi plant, also located in Shenyang, would achieve new levels of environmental quality. “Ten years ago our plant in Leipzig [Germany] was one of the most environmentally friendly in the world. Now we are planning to make the Tiexi facility the most environmentally friendly.”
This will be achieved using some of the latest automotive production technologies. The €1 billion plant has been designed using the ‘single roof concept’, meaning that all major production processes are located in the same superstructure. It will feature reduced use of solvents, recyclable materials (which includes finished vehicles that are almost 100% recyclable at ELV), and reduced CO2 production coupled with increased fuel efficiency.
“In the future, ‘premium’ will be measured by sustainability,” said Heülsenberg. As a part of this, there will be a price premium on fuel-efficient vehicles, which BMW anticipates will achieve increasing market acceptance in China.
Returning to the theme of improved quality, Bertram Holder, director at series car manufacturer Magna Steyr based in Graz, Austria, said that the underlying key to quality is transparency. Magna Steyr currently builds such vehicles as the Mini Countryman and Aston Martin Rapide, and transparency means that the various areas of expertise in automotive production must be able to share and use data with the goal of improving both production processes and finished vehicle quality. This, he said, would help with solving problems occurring across all production processes, while also helping to balance the line in preparation for future production levels.
Practical workshops on technologies and quality
The two-day conference featured eight separate sessions focussed on specific aspects of production and assembly. They ranged from stamping and casting through materials handling, body-in-white and automation, to paintshop and energy management. As well as executives from a range of vendors, the sessions featured presentations from OEMs including those from Liu Dong, head of paintshop planning at FAW-Volkswagen, Ding Shaochun, chief engineer of mechanical processing at Dongfeng Motor, and Zheng Dayuan, from the maintenance department at Beijing Benz.
These sessions served to update delegates on the latest technologies and – perhaps even more important – their application within China. And one also focussed on supplier development, which brought in the issues of quality once again.
Wilson Ni, vice president of tier supplier ASIMCO, displayed graphs which showed the average level of defects in finished vehicles produced in 2010. While imported cars had an average 150 defects per 100 vehicles, he explained, those produced in China's joint-venture plants averaged 233 while those from purely domestic OEMs averaged 344 per 100.
Images from Shanghai, where delegates networked and learned. The conference concluded with a panel discussion including GM's Buttermore, BMW's Heülsenberg and Ford's manufacturing supervisor Coco Chien,
On to the future
The week in which the AMS China was held also saw China inagurate the country's longest high-speed rail link connecting Beijing and Shanghai, and the introduction into service of its second major gas pipeline shipping energy from the west of China to the populous regions of the east.
In Beijing the government made the surprise announcement that income tax thresholds are to rise from a monthly level of RMB2000 to RMB3500 (about $540), taking some 20% of wage earners out of paying income tax and boosting domestic demand.
Everywhere there is investment and growth. For the automotive industry, the current shallow penetration of vehicle ownership – at about 50 for every 1,000 people in China compared with 600 for Europe and over 800 for North America – means that there is still huge growth to come. GM's John Buttermore reminded delegates that forecasters say that by 2020 an additional 25 million cars will be sold worldwide, and that half of the increase will be in China.
So market conditions looks set to continue favourable. The challenge for the automotive industry is not to meet the growth, but to meet it with the quality of production that China's increasingly-discerning car-buyers will demand.